But what are the factors that effect the price of gold ? These are discussed below :
Amount of gold mined :
World biggest mine fields of gold in terms of volumes produced are located in South Africa, Peru , Australia, China and USA. Any time a new mine is launched , the amount of available gold increasing which shifts the balance. This causes the price to come down a tad. However , many of the running gold mines has become exhausted . And the existing miners are constantly required to dig deeper to get a hold of more gold. Hence, the world have not see a net jump in gold production for over a decade.
Demand vs Supply :
The demand for gold has always been sky rocketing , but the supply is always less. This gap has been there all throughout the history forcing the price of gold to go up. Gold has a variety of use. It is used as both jewelry and in many manufacturing applications. About 54% of the current gold is used as various types of ornaments whereas 12% are used in the industry.
Gold is a durable metal . It can fend off corrosion for long periods. Many appliances like computers, calculators, cell phones, GPS systems, tv etc have gold as their integral part . Gold is also used in the medical, biochemistry, aeronautics and many other research centers . Hence , there is always very high demand of gold .
Reserve of central bank :
Central banks keep gold and paper currencies in reserve. According to the World Gold Reserve ( WGC), central bank throughout the world are selling gold to a lesser extent but buying gold more. This is the first time in many years that the world has witnessed this scenario. As gold becomes the monetary reserve in place of paper currencies , the price of gold will rise. This has been the case in USA, France , Italy , Germany , Portugal and many other European countries.
Worth of US Dollar:
Gold price moves in the opposite direction to the value of dollars in USA. Stronger US dollar keeps the gold price down , whereas weak US dollar drives the gold price upward. Why ? Because people trade and invest in dollars in a situation where the dollar is strong. However , when the economy is uncertain , wobbly and the dollar is weak, people tend to invest in gold and other forms of precious metals.